Aussie made significant gains at the end of last week and is continuing to advance this morning

In trading on Friday, the pound slipped back from two-week highs around the 1.8000 level against the aussie as a weak GDP figure dulled demand for the UK currency.

• A report showed that the UK failed to exit the recession in the third quarter of this year, giving the central bank more reason to keep enacting emergency measures to spur growth.
  
• The data showed that the UK contracted by a further 0.4%, disappointing expectations of a 0.2% expansion and firmly halting the pound's progress.
  
• Where as in Australia interest rates have already been raised on the back of growing confidence in the economy, the UK may now be considering further loosening its monetary policies as recovery struggles to take hold.
  
• In trading this morning, the pound continues to fall, currently down 0.4% after the aussie received a boost from a Chinese report that suggested authorities were looking to diversify the country's foreign exchange reserves.
  
• The report suggested that China may look to buy up euro's and yen, which analysts said could also spill over into the aussie providing further demand.

The single currency pared recent gains on Friday, but has recovered in trading this morning

The single currency slipped back from multi-month highs against the dollar following positive US housing data, with the pair closing the week at 1.5006.

• The US dollar found support after a report showed that US existing-home sales improved more than expected last month.
  
• Resales of US houses jumped 9.4% in September to a seasonally adjusted annual rate of 5.57 million, the highest rate in more than two years, which stemmed the recent broad dollar sell off.
  
• Analysts stated that the recent bout of euro strength could now be looking over-stretched, given huge accumulation of short positions on the dollar.
  
• In addition, the single currency came under pressure at the end of last week after Henri Guaino, right-hand man of President Nicolas Sarkozy said that, "the euro at $1.50 is a disaster for the European economy and industry," reaffirming the recent sentiment of the ECB.
  
• However, the dollar has fallen to a fresh 14-month low against the euro in trading this morning after a Chinese central bank researcher called for moving some of the country's massive foreign reserves into euro and yen holdings, weakening demand for the US currency.

Sterling fell back significantly against the dollar on Friday, as GDP figure disappoints the market

Sterling lost three cents (1.9%) to the dollar, as a weak UK quarterly GDP figure abruptly halted the pound's recent rally.

• The greenback gained the most daily value against the pound in a month as the UK's economy unexpectedly contracted in the third quarter, giving the Bank of England more reason to expand emergency measures to spur growth.
  
• It is the first time UK gross domestic product has contracted for six consecutive quarters, since quarterly figures were first recorded in 1955.
  
• The pound fell more than a cent against the US dollar following the release of the figures, losing 0.6% in two minutes, with traders particularly concerned that the UK may turn out to be the only major economy still in recession.
  
• The unexpected decline in the services sector was the key factor behind the drop. The UK economy's reliance on the service sector, and financial services in particular, may be the reason why it is still in recession when partners such as France and Germany exited earlier in the year.
  
• This suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, which will put further pressure on the pound.

UK economy contracted by 0.4%, which has and will continue to weigh heavily on sterling

In an uncertain day for the UK economy, the pound lost as much as 2.0% to the euro on Friday, sharply reversing its recent rally to close down at 1.0862.

• Data revealed that the UK economy unexpectedly contracted by 0.4% between July and September this year, confirming that the UK is still in recession.
  
• Quarterly growth of 0.2% had been expected, although expectations had been tempered by recent figures showing no growth in retail sales in September and a 2.5% decline in industrial output in August.
  
• Importantly, the disappointing GDP figures may now lead the Bank of England to consider the possibility of extending their asset purchase scheme in their November meeting in order to sustain the evidently fragile recovery.
  
• Recent comments from policymakers had led markets to believe that the UK would be tightening monetary policies, however the tone is likely to be quite different following Friday's GDP figure.
  
• In trading this morning, the pound remains under pressure with investors continuing to sell the UK currency following last week's disappointing data.

UK GDP contracts by 0.4% - pound dives

Data this morning has run significantly against market expectations, confirming that Britain is still in a recession. The UK’s third quarter GDP figure was revealed to be a 0.4% contraction, which now means that the UK has suffered 6 consecutive quarters of negative growth. Market participants had speculated that the UK economy would grow by 0.2% in the months from July to September and had taken the pound slightly higher this morning.

There has been data recently though that points to this disappointing figure. Data in early Ocotber revealed that manufacturing production had fallen by 1.9%, significantly below forecast and this has clearly weighed heavily on overall output. In addition, yesterday's UK retail sales figures, showed that there was no growth in High Street activity in September, which was a further warning that the economy may not yet be expanding.

Investors will now be looking ahead to the Bank of England’s next policy meeting on the 5th November, where the members will have to seriously consider the possibility of extending their asset purchase scheme. Recently, we have seen G20 countries preparing to make steps to remove monetary stimulus measures as the global recovery strengthens, however the BoE still clearly has a long way to go before such steps can be taken. Even dovish market participants were not expecting Britain’s economy to have contracted by as much as 0.4%, a figure that truly underlines the fragility of the recovery.

As the news was reported, the pound dropped a full percent against both the euro and the dollar, as investors hurried to sell their sterling. Looking to the short and even medium term, the UK currency will remain under heavy selling pressure, with confidence in the economy shot. That we are still in a recession and with the possibility of further QE now back on the horizon, investors will see little hope of an interest rate rise in Britain even into 2010, which will heavily on the value of sterling.

The kiwi edged higher against the pound but has weakened this morning following important Chinese data

Having given up ground to the UK currency in early trading, the kiwi rallied steadily through the afternoon, to close marginally up at 2.1833.

• The pound found support yesterday after the BoE’s policy minutes revealed no direct discussion over further loosening the current monetary policy.
  
• In the wake of the news, sterling posted an intra-day high of 2.2074 as investors grew more confident in the outlook for the UK economy.
  
• However, the New Zealand dollar capped its losses as Alan Bollard, governor of the Reserve Bank of New Zealand, in a speech appeared surprisingly reserved over the recent appreciation of the kiwi dollar.
  
• Mr Bollard said that kiwi strength was “not necessarily an obstacle to raising the cash rate,” encouraging investment in the higher-yield currency.
  
• In trading this morning, the New Zealand dollar has weakened, enabling the pound to advance back towards 2.20, as Chinese data failed to do more than meet market forecasts, giving traders a reason to cash profits.

Pound continued to climb against the aussie yesterday as confidence in the UK economy improved

A broadly stronger pound hit a two-week high against the aussie, briefly rising over 1.8000, as confidence in the UK economy gained momentum.

• Sterling jumped following the minutes from the Bank of England’s latest policy meeting, which dampened expectations of an extension to quantitative easing.
  
• The minutes appeared to move the balance of market expectations to the possibility of a pause of the government’s asset purchase scheme in November, reversing recent speculation.
  
• In addition, the aussie dollar found its strength undermined as commodity prices, most notably oil, turned lower, discouraging investors from the higher-yielding currency.
  
• In trading this morning the pound has continued to advance, reaching back over 1.80, as investors cut long positions in the “riskier” currency after Chinese data dashed expectations of some who were betting on a positive surprise.
  
• The most significant figure, the Chinese 3rd quarter GDP, revealed a growth rate of 8.9%, bang in line with expectations, however there had been hopes of over 9.0%.

Euro managed to push through $1.50, but has slipped this morning following mildy disappointing Chinese data

The single currency resumed its upward march against the greenback yesterday, finally broaching the 1.50 mark, to close up half a cent at 1.5015.

• In early trading, the euro retreated from near 14-month highs as some investors bet European policy makers would say they are still concerned that the euro’s strength will harm the economic recovery.
  
• Analysts also said that the single currency’s sharp fall against the pound weighed on the euro/dollar price, which has recently remained anchored just below the $1.50 level.
  
• However, the dollar relinquished its gains in the afternoon as rising U.S. equities encouraged enough risk appetite to push the single currency to the highest level since last August.
  
• In trading this morning, the single currency has once again slipped back as solid data from China gave traders a reason to take profits.
  
• Analysts have noted, though, that the dollar is likely to continue to broadly weaken as sentiment towards the US currency remains downbeat on the prospect of sustained low US interest rates.

Sterling made substantial ground on the dollar yesterday as the BoE showed no sign of loosening montary policy further

Dollar selling in the market was stepped up with investors moving into the pound as the MPC minutes proved more positive than expected.

• The pound climbed over 1.66, posting a two and half cent gain against the dollar as the minutes from the Bank of England’s October monetary policy meeting struck a less dovish tone than recent comments suggested.
  
• Analysts said the most important story within the release was the fact that in the September meeting, governor Mervyn King thought an expansion of the central bank’s quantitative easing programme could be justified. But there was no mention of that in this latest meeting.
  
• Additionally, the pound was given further support after Mr King said in an opinion piece in Scotland’s Herald newspaper that, “it would be wise to take account” of the prospect of higher interest rates, heightening confidence in the UK economy.
  
• The dollar is up slightly in morning trading as a raft of Chinese data, though positive, failed to offer any major surprises, gaining in line with market expectations.

The pound posted a one cent gain against the euro yesterday, buoyed by the MPC minutes

Sterling reached a one-month high against the single currency, rallying strongly as the BoE’s latest policy meeting made no mention of further QE.

• The MPC minutes gave substantial support to the pound, which advanced 1.1% to reach a high of 1.1112, after they sounded a more positive tone than recent statements from policymakers suggested.
  
• It was revealed that the nine member committee had voted unanimously to leave the size of its asset purchase scheme unchanged at £175 billion, as had been widely expected, and made no direct reference to extending QE in the future.
  
• This perhaps suggests that the more positive macro news flow and the strength in asset prices may be moving the committee towards favouring a pause in quantitative easing at their November meeting.
  
• Later in the day, the pound capped its gains, consolidating below 1.11, with investors now awaiting retail data released today at 09:30BST.
  
• In addition, analysts noted that the eagerly awaited GDP figure on Friday could call a sharp halt to sterling’s recent rally should it fail to meet expectations of a 0.1% growth rate.